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Economics of bitcoin price formation

Bitcoin Price Formation

Bitcoin prices are determined by supply and demand in the market for bitcoins. The number of bitcoins in circulation is limited, so the price is determined by the number of people who want to buy and sell them. Learn more at The Official trading site.

Whenever there is a greater desire for something than there is availability for it, the price rises; the price drops when there is a surplus of stock over desire.

Some people believe that the price of bitcoin is also influenced by speculators betting on the future value of bitcoin. 

For example, if many people think that the cost of bitcoin will go up, they will buy bitcoins now in anticipation of selling them later at a higher price. As a result, it can drive the price up even further.

Bitcoin prices are also influenced by news. If there is an excellent news report about bitcoin, for example, the price may rise. Or if there is a negative news story about bitcoin, the price might go down.

Ultimately, the price of bitcoin is determined by the supply and demand in the market for bitcoins which means that the cost of bitcoin can go up or down depending on what people are willing to pay for it.

Significant factors that influence bitcoin price formation:

1. Regulation

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The first and most obvious factor is regulation. Governments all across the globe are still pondering how to cope with bitcoin and similar altcoins. Some governments have outright outlawed them, while several have adopted a more laissez-faire attitude.

This regulatory uncertainty has contributed to the volatility of bitcoin prices. When governments take a harsher stance on cryptocurrencies, the prices tend to go down. For example, in September 2017, China cracked down on initial coin offerings and bitcoin exchanges, causing the price of bitcoin to drop by more than 20%.

2. Media coverage

The media ‘s exposure to bitcoin is one aspect that can impact its price. When Bitcoin receives a lot of favorable press, the price usually rises. Consequently, more individuals are familiar with bitcoin and its various applications. They then buy bitcoins to make a profit if the price goes up. On the other hand, negative media coverage can also cause the price of bitcoin to drop.

3. Investor confidence

Investor confidence is also a significant factor that can influence bitcoin price. When investors are confident in bitcoin, they are more likely to buy it, increasing costs. However, they are more likely to sell when there is low investor confidence, driving the price down.

4. Supply and demand

Finally, the most fundamental factor that drives the price of bitcoin is supply and demand. The number of people who want to buy bitcoins consistently exceeds the number of people who want to sell them, so the price goes up. And when more people want to sell bitcoins than buy them, the price goes down.

These are just a few significant factors that can influence bitcoin price. In reality, there are many more factors that can have an impact.

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Other minor factors that influence bitcoin price formation:

1. The price of Bitcoin Gold: 

Bitcoin Gold is a new cryptocurrency created in October 2017. When it was first launched, the price of Bitcoin Gold was meager because there was not much demand for it. However, as more people began to buy it, the price increased.

2. The price of other cryptocurrencies: 

Bitcoin isn’t the only crypto available. Therefore, the prices of these other cryptocurrencies can influence the price of Bitcoin.

3. Forks: 

A fork is when a cryptocurrency splits into two versions. For example, Bitcoin Cash was generated in August 2017 via a partition of the Bitcoin network.

4. Hedging: 

Hedging is when an investor takes out a position in a particular asset to protect themselves from potential losses. For example, an investor might buy bitcoins as a hedge against the risk of the stock market going down. 

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5. Market manipulation: 

Regulated or not, the bitcoin economy is still in its infancy. Unfortunately, it means that there is a lot of room for manipulation by big players who can move the prices of cryptocurrencies up or down for their benefit.

Conclusion:

Now that you know a little bit more about how the price of bitcoin is determined, you can make better decisions when trading this cryptocurrency. 

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